G8 EDUCATION CONFIDENT OF MAJOR SINGAPOREAN ACQUISITION

Written on the 5 April 2011

THE board of publicly-listed Gold Coast childcare company G8 Education (ASX: GEM) today assured shareholders that the acquisition of Singapore’s Cherie Hearts will be a success, despite a dispute with the vendor going before the courts later this month.

G8 Education has been operating 52 Cherie Hearts’ franchises since December without dispute, however a legal stoush has developed in how the Gold Coast company obtained control over the 13 corporate-owned centres last month – another five of which are being negotiated.

The acquisition contract entered into in October saw G8 advance funds to Cherie Hearts so the Singaporean child care franchisor could tie up debts with creditors.

When extensive negotiations didn’t produce an agreement to repay the debt, G8 seized control of 13 of the centres by transferring the shares of the subsidiary companies into its own asset base.

Cherie Hearts Group International is disputing both the loan value, which they state has been taken off the acquisition price, and the means by which G8 acquired its corporate-owned centres.

The Singaporean holding company has publicly expressed its disappointment that G8 Education, now its chief investor, has appointed receivers KordaMenthaNeo to recover the estimated $4 million debt.

“We did appoint a receiver to the vendors holding company because there is a sum that is owed to us,” says Hutson.

“Whilst they have sought to set aside the receivership and the other actions that we’ve taken, we’ve taken legal advice and we have appeared before the relevant judge in Singapore and that’s all been adjourned until the 14th or 15th of April. We’re very confident that we’ll have the right outcome from a G8 perspective on that day.

“In terms of the net outcome for G8, what that means is that we have control of and are operating in an appropriate fashion for 13 of the childcare centres that we anticipated acquiring from Cherie Hearts, the route to get them was just a little bit different.”

G8 Education has also entered into an acquisition agreement with the owners of the remaining five Cherie Hearts corporate centres.

“When this is finished we will have in total 18 childcare centres in the corporate sense which is what we flagged was our intention when we announced the acquisition on 28 October last year,” says Hutson.

“In addition we have 52 as opposed to the initially proposed 48 franchise centres as a result of arrangements that were reached in December last year.

“There’s no challenge around the franchisees. In terms of the corporate centres they still owe us money and in the beyond remote event that the court decided to transfer the shares back we would then have a contractual dispute and we would then look to enforce our position under that contract.”

The entire Singapore deal is likely to cost around $16 million instead of the originally forecasted $19.2m.

The company’s success is a remarkable turnaround story for Hutson, managing director Chris Scott and CEO Craig Chapman, all former directors of the failed MFS (Octaviar).

Scott, who now heads the company’s Singaporean operations, was fined $130,000 and penalised with a lifetime ban under the Queensland Property Agents & Motor Dealers Act in February.

Today he told Gold Coast Business News he was cleared by the tribunal of any dishonesty and the decision has no effect on his ability to run G8 Education.

“The simple fact is that I was the licensee, there was inadvertent breaches of law according the OFT (Office of Fair Trading) and we didn’t agree with that,” says Scott.

“At the end of the day, I just ran out of money defending it so we let it go. The problem is when you’re a licensee you end up carrying the can for everybody. There was no suggestion that I was involved in it and no-one (G8 shareholders) cares about it. It’s done, finished and over.”

G8’s strong corporate-level acquisition strategy has delivered excellent returns for shareholders. The share price increased from 40c when the company floated in 2010 and is now trading at $1.00.